An interview with Serafino Bartolozzi, Chair of the European Chamber’s Automotive Components Working Group.
Serafino Bartolozzi has worked in the automotive industry for 32 years, covering various responsibilities from assembly and welding production units, to quality; from operating technical help desks to aftersales. Serafino, who is Director and General Manager Asia-Pacific of the aftermarket for MAHLE, became Chair of the Chamber’s Auto Components Working Group in March 2015. He has been in China for over seven years.
Have you found the role of Chair fulfilling so far?
It is a challenge as much as it is rewarding. As a businessman the way I conduct business is more technical and less political, perhaps more straightforward. When representing the Chamber we have to deal with different companies that all have varied policies, cultures and mind-sets, so it’s very important to understand, mediate and compromise. The challenge is switching between different modes of thinking. The reward is to accomplish a better business environment for all auto components suppliers.
What do you feel are the main differences in China’s auto components industry/market now, compared to when you first came to China?
When I first arrived in China the market was extremely small. Companies were just betting and hoping for returns and future growth. In some cases, especially among European companies, the growth is now there but not always with satisfactory returns.
The Chinese authorities have started to address the issue of the strong presence in the aftermarket of the OEMs (original equipment manufacturers) – they have pared down their unrivalled market position, but this situation still needs further improvement.
Are you positive about future market development?
Yes, I am definitely positive. The Chinese authorities are taking some very important steps in regulating the market and there are some similarities to the situation in Europe as it was more than 20 years ago that led to the introduction of specific laws. Observing the dominant position held by OEMs, the EU introduced the Motor Vehicle Block Exemption Regulation stipulating that OEMs must publish all the information related to how to diagnose and repair their vehicles. This knowledge was previously held by the OEMs and only distributed throughout their authorised network. Other provisions state that OEMs cannot prevent auto components suppliers from participating in the independent aftermarket. The implementation of this law opened up the possibility for this market to develop.
However, the situation in China is complicated by the fact that its market is so much bigger and the vehicles are totally different – there are so many different brands and models that didn’t exist back then. In China there are all the foreign brands, plus around 50 Chinese vehicle manufacturers. The problem is amplified by the complexity of the vehicles – they have now become computers on wheels. Nowadays, in order to understand the condition of a car you have to plug it into a computer, so the situation is quite different in this respect.
What are the main market access issues that European auto components companies face in China?
Challenges include the fact that Chinese entrepreneurs are moving fast and are catching up with technology and business practices, so the lead that European companies have is becoming narrower. This could be on the one hand a threat if we do not restructure ourselves to be able to compete. But this could also be a stimulus for further improvement and force companies to understand Chinese culture better and the dynamics that are regulating the market in China – they are totally different to those in other large markets in the world.
Counterfeiting is for sure the biggest problem. It is a plague in our industry and we estimate that for every genuine product we sell there are between five and eight counterfeits that are sold. That isn’t just limited within China because we see exports of counterfeit parts around the world. Counterfeits are also found in Europe, too, but this problem is more prevalent in areas where there is less attention paid to IP issues, such as in certain parts of Southeast Asia and Africa. The counterfeits that turn up in other markets mostly originate from China.
With China’s economy slowing, how is the auto components industry adjusting?
We see that passenger car sales are almost the same as last year, but in commercial vehicles we see a tremendous drop – our sales in this segment are more than 30 per cent down. This could be an indicator of the economic slowdown. The point is that all players in the industry—both the auto components suppliers and the OEMs—have an increasingly high production capacity, meaning that fixed costs are significant. If the output of these factories dips below 80 per cent of their nominal capacity, which is normally the break-even point, then there will be a very uncomfortable situation: OEMs will have to reduce vehicle prices and apply more discounts, and specifications may be reduced in a bid to keep the factories working as much as possible. Of course the margins will be much lower and this will need to be compensated by asking the parts suppliers to lower their prices. So there could be a squeeze at all levels.
If fewer vehicles are sold then the average age of cars will be older and that of course means they would require more maintenance and repairs, which could be good for the aftermarket. However, the market is also about sentiment, so if people think that the situation is not going to be good maybe they will use their car less and are perhaps be more inclined to buy cheaper or even counterfeit parts.
Do you think some companies may move their manufacturing bases out of China?
No, I don’t think so. I don’t see much demand coming from other Asian markets except for perhaps India, although even there the scale is much, much smaller. So there isn’t really anywhere else that could generate the same demand as China. Most of the players in the auto components industry have made large investments in China that now oblige them to stand firm, particularly in light of the fact that things may look a lot better in a few years’ time, so you cannot just walk away. Furthermore, China has developed an impressive infrastructure that no other emerging country in Asia can match.
What would you consider to be the major lobbying successes of the working group?
The AML, and more recently the draft recommendations that have been published on repair and maintenance information having to be distributed by OEMs to any operator in the aftermarket – these are two of the biggest achievements.